Accounting practice definition
/What is Accounting Practice?
Accounting practice is the system of procedures and controls that an accounting department uses to create and record business transactions. Accounting practice should be extremely consistent, since there are a large number of business transactions that must be dealt with in exactly the same manner in order to produce consistently reliable financial statements. Auditors rely upon consistent accounting practice when examining a company's financial statements. Properly applied accounting practice is also useful for enforcing a high level of ethical standards within an accounting department, which in turn contributes to the production of accurate financial statements. Furthermore, consistently-applied accounting practice reduces the risk of fraud, since it imposes a high level of consistency in how transactions are dealt with.
Examples of Good Accounting Practice
There are many types of good accounting practice. Here are several examples:
Always use the same calculation to determine the amount of overtime paid to employees, in order to be consistent with compensation payments.
Always use the same credit policy to grant credit to all customers, so that the amount of credit granted is always based on the same set of criteria.
Always issue billings to customers on the same day that goods are shipped to them. Doing so accelerates the cash flows from customer payments.
Always pay supplier invoices on the day when they are due. If you pay these bills any earlier, you are losing the use of the associated cash earlier than is necessary.
Always use the same depreciation method for the same class of fixed assets, to ensure consistency in the derivation of depreciation expense. This eliminates any anomalies that the outside auditors might otherwise spot.
Related AccountingTools Courses
Accounting Information Systems
Accounting Procedures Guidebook
Training for Accounting Practice
The development of a high level of accounting practice calls for the routine examination of any departures from the mandated process flow, so that errors can be spotted and the underlying causes corrected. This level of self-examination is only possible if the accounting staff has a sufficiently high level of training to understand the proper process flow. The staff should also be able to identify when a departure from the authorized process has occurred, how to devise a systemic correction to an error, and how to ensure that the change is properly implemented in the process on a go-forward basis.
It is especially important to require training in these topics for new hires, so that they can maintain departmental standards. Refresher courses might also be considered for existing staff, especially if new best practices have emerged.
Best Practices for Accounting Practice
Accounting practice calls for the continual installation and updating of best practices, so that both the efficiency and effectiveness of accounting processes are improved over time. Doing so calls for additional skills in identifying best practices and in the installation and monitoring of any changes made. It is quite likely that this will involve the installation of computerized accounting systems, as well as the automation of data recordation for selected accounting transactions. A business may want to periodically hire a process consultant who can advise on leading practices, to ensure that systems are modernized as needed. Another option is to periodically attend accounting conferences to learn about the latest practices.
The Impact of Software on Accounting Practice
One way to improve accounting practice is to occasionally upgrade to more advanced accounting software. This is because more expensive systems contain features not contained within lower-cost packages that can reduce error rates, as well as reduce the amount of labor required to complete accounting transactions. Smaller organizations frequently start with Quickbooks, which is a serviceable and inexpensive accounting system, and later upgrade to more feature-rich software, such as Oracle or SAP, which provide a number of integrated accounting best practices. However, these more advanced systems are much more expensive, and will be out of reach of smaller entities that do not generate enough profit to afford them.